Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 10-K, for a more complete understanding of our financial position and results of operations. In addition, investors should review the “Cautionary Note Regarding Forward-Looking Statements” above and the “Risk Factors” detailed in Part II, Item 1A of this report and in Part I, Item 1A of our 2023 10-K, as subsequently updated in other reports we file with the SEC, for a discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. Our results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year or for any other period.
Overview
We provide private MI through our primary insurance subsidiary, NMIC. NMIC is wholly-owned, domiciled in Wisconsin and principally regulated by the Wisconsin OCI. NMIC is approved as an MI provider by the GSEs and is licensed to write coverage in all 50 states and D.C. Our subsidiary, NMIS, provides outsourced loan review services to mortgage loan originators and our subsidiary, Re One, historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements. Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted. Re One remains a wholly-owned, licensed insurance subsidiary; however, it does not currently have active insurance exposures.
MI protects lenders and investors from default-related losses on a portion of the unpaid principal balance of a covered mortgage. MI plays a critical role in the U.S. housing market by mitigating mortgage credit risk and facilitating the secondary market sale of high- loan-to-value (LTV) ( i.e., above 80%) residential loans to the GSEs, who are otherwise restricted by their charters from purchasing or guaranteeing high-LTV mortgages that are not covered by certain credit protections. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to existing and prospective homeowners.
NMIH, a Delaware corporation, was incorporated in May 2011, and we began start-up operations in 2012 and wrote our first MI policy in 2013. Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio. As of March 31, 2024, we had issued master policies with 1,984 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders. As of March 31, 2024, we had $199.4 billion of primary insurance-in-force (IIF) and $52.6 billion of primary risk-in-force (RIF).
We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a high-quality customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilizing our proprietary Rate GPS ® pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders.
Our strategy is to continue to build on our position in the private MI market, expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships, disciplined and proactive risk selection and pricing, fair and transparent claim payment practices, responsive customer service, and financial strength and profitability.
Our common stock trades on the Nasdaq under the symbol “NMIH.” Our headquarters is located in Emeryville, California. As of March 31, 2024, we had 234 employees. Our corporate website is located at www.nationalmi.com . Our website and the information contained on or accessible through our website are not incorporated by reference into this report.
We discuss below our results of operations for the periods presented, as well as the conditions and trends that have impacted or are expected to impact our business, including new insurance writings, the composition of our insurance portfolio and other factors that we expect to impact our results.
26
Conditions and Trends Affecting Our Business
Macroeconomic Developments
Macroeconomic factors, including persistent inflation, elevated interest rates, flagging consumer confidence and increasing jobless claims could have a pronounced impact on the housing market, the mortgage insurance industry and our business in future periods. A marked decline in housing demand, a significant and protracted decrease in house prices or a sustained increase in unemployment could reduce the pace of new business activity in the private mortgage insurance market and negatively impact our future new insurance written (NIW) volume, or contribute to an increase in our future default and claim experience.
Key Factors Affecting Our Results
New Insurance Written, Insurance-In-Force and Risk-In-Force
NIW is the aggregate unpaid principal balance of mortgages underpinning new policies written during a given period. Our NIW is affected by the overall size of the mortgage origination market and the volume of high-LTV mortgage originations. Our NIW is also affected by the percentage of such high-LTV originations covered by private versus government MI or other alternative credit enhancement structures and our share of the private MI market. NIW, together with persistency, drives our IIF. IIF is the aggregate unpaid principal balance of the mortgages we insure, as reported to us by servicers at a given date, and represents the sum total of NIW from all prior periods less principal payments on insured mortgages and policy cancellations (including for prepayment, nonpayment of premiums, coverage rescission and claim payments). RIF is related to IIF and represents the aggregate amount of coverage we provide on all outstanding policies at a given date. RIF is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the unpaid principal balance of such insured mortgage. RIF is affected by IIF and the LTV profile of our insured mortgages, with lower LTV loans generally having a lower coverage percentage and higher LTV loans having a higher coverage percentage. Gross RIF represents RIF before consideration of reinsurance. Net RIF is gross RIF net of ceded reinsurance.
Net Premiums Written and Net Premiums Earned
We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules. On June 4, 2018, we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS ® . Rate GPS ® considers a broad range of individual variables, including property type, type of loan product, borrower credit characteristics, and lender and market factors, and provides us with the ability to set and charge premium rates commensurate with the underlying risk of each loan that we insure. We introduced Rate GPS ® in June 2018 to replace our previous rate card pricing system. While most of our new business is priced through Rate GPS ® , we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for operational reasons. We believe the introduction and utilization of Rate GPS ® provides us with a more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns.
Premiums are generally fixed for the duration of our coverage of the underlying loans. Net premiums written are equal to gross premiums written minus ceded premiums written under our reinsurance arrangements, less premium refunds and premium write-offs. As a result, net premiums written are generally influenced by:
• NIW;
• premium rates and the mix of premium payment type, which are either single, monthly or annual premiums, as described below;
• cancellation rates of our insurance policies, which are impacted by payments or prepayments on mortgages, refinancings (which are affected by prevailing mortgage interest rates as compared to interest rates on loans underpinning our in force policies), levels of claim payments and home prices; and
• cession of premiums under third-party reinsurance arrangements.
Premiums are paid either by the borrower (borrower-paid mortgage insurance or BPMI) or the lender (lender-paid mortgage insurance or LPMI) in a single payment at origination (single premium), on a monthly installment basis (monthly premium) or on an annual installment basis (annual premium). Our net premiums written will differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy. Substantially all of our single premium policies in force as of March 31, 2024 were non-
27
refundable under most cancellation scenarios. If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recognized in the month billed and when the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums.
The percentage of IIF that remains on our books after any twelve-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our net premiums earned and profitability. Generally, faster speeds of mortgage prepayment lead to lower persistency. Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies. Because premiums are paid at origination on single premium policies and our single premium policies are generally non-refundable on cancellation, assuming all other factors remain constant, if single premium loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, we do not earn any more premium with respect to those loans and, unless we replace the repaid monthly premium loan with a new loan at the same premium rate or higher, our revenue is likely to decline.
Effect of Reinsurance on Our Results
We utilize third-party reinsurance to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements, and support the growth of our business. We currently have both quota share and excess-of-loss reinsurance agreements in place, which impact our results of operations and regulatory capital and PMIERs asset positions. Under a quota share reinsurance agreement, the reinsurer receives a premium in exchange for covering an agreed-upon portion of incurred losses. Such a quota share arrangement reduces premiums written and earned and also reduces RIF, providing capital relief to the ceding insurance company and reducing incurred claims in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company's acquisition and underwriting expenses. Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums. Under an excess-of-loss agreement, the ceding insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit. We expect to continue to evaluate reinsurance opportunities in the normal course of business.
Excess-of-Loss Reinsurance
Insurance-Linked Notes
NMIC is party to reinsurance agreements with the Oaktown Re Vehicles that provide it with aggregate excess-of-loss reinsurance coverage on defined portfolios of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount. NMIC then retains losses in excess of the respective reinsurance coverage amounts.
The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease (over a ten-year period in the case of Oaktown Re III Ltd. and Oaktown Re V Ltd. and 12.5-year period in the case of Oaktown Re VI Ltd. and Oaktown Re VII Ltd.) as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled. As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event). Effective March 31, 2024, a previously triggered Lock-Out Event for the 2019 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.
NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement. In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.
28
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding ILN Transaction. Current amounts are presented as of March 31, 2024.
( $ values in thousands)
Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1)
2019 ILN Transaction July 30, 2019 6/1/2018 – 6/30/2019 $ 326,905 $ 155,552 $ 123,424 $ 121,702
2020-2 ILN Transaction October 29, 2020 4/1/2020 – 9/30/2020 (2)
242,351 47,502 121,777 121,177
2021-1 ILN Transaction April 27, 2021 10/1/2020 – 3/31/2021 (3)
367,238 199,639 163,708 163,394
2021-2 ILN Transaction October 26, 2021 4/1/2021 – 9/30/2021 (4)
363,596 293,619 146,229 145,715
(1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.
(2) Approximately 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.
(3) Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30, 2020.
(4) Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.
Traditional Reinsurance
NMIC is party to six excess-of-loss reinsurance agreements with broad panels of third-party reinsurers – the 2022-1 XOL Transaction, effective April 1, 2022, the 2022-2 XOL Transaction, effective July 1, 2022, the 2022-3 XOL Transaction, effective October 1, 2022, the 2023-1 XOL Transaction, effective January 1, 2023, the 2023-2 XOL Transaction, effective July 1, 2023, and the 2024 XOL Transaction, effective January 1, 2024 – which we refer to collectively as the XOL Transactions. Each XOL Transaction provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount. The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from its peak over a ten-year period in the event the PMIERs minimum required assets of the pool declines. NMIC retains losses in excess of the outstanding reinsurance coverage amount.
NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a specified date. NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage. Additionally, under the terms of the treaties, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold, and/or a reinsurer breaches (and fails to cure) its collateral posting obligation.
Each of the third-party reinsurance providers that is party to the XOL Transactions has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.
The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding XOL Transaction. Current amounts are presented as of March 31, 2024.
($ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage Current Reinsurance Coverage Initial First Layer Retained Loss Current First Layer Retained Loss (1)
2022-1 XOL Transaction April 1, 2022 10/1/2021 – 3/31/2022 (2)
$ 289,741 $ 227,863 $ 133,366 $ 133,007
2022-2 XOL Transaction July 1, 2022 4/1/2022 – 6/30/2022 (3)
154,306 152,347 78,906 78,735
2022-3 XOL Transaction October 1, 2022 7/1/2022 – 9/30/2022 96,779 96,197 106,265 106,023
2023-1 XOL Transaction January 1, 2023 10/1/2022 – 6/30/2023 89,864 88,351 146,513 146,348
2023-2 XOL Transaction (4)
July 1, 2023 7/1/2023 – 12/31/2023 100,777 100,777 136,875 136,875
2024 XOL Transaction (5)
January 1, 2024 1/1/2024 – 12/31/2024
37,404 37,404 65,217 65,217
29
(1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable XOL Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.
(2) Approximately 1% of the production covered by the 2022-1 XOL Transaction has coverage reporting dates between October 21, 2019 and September 30, 2021.
(3) Approximately 1% of the production covered by the 2022-2 XOL Transaction has coverage reporting dates between January 4, 2021 and March 31, 2022.
(4) Effective January 1, 2024, the initial reinsurance coverage and initial first layer retained loss amounts increased due to revised contractual terms.
(5) The initial reinsurance coverage, current reinsurance coverage, initial first layer retained loss and current first layer retained loss for the 2024 XOL Transaction will increase as incremental covered production is ceded under the transaction through December 31, 2024.
Quota Share Reinsurance
NMIC is party to eight quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016 and as modified April 1, 2019, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020 and as amended January 1, 2024, the 2021 QSR Transaction, effective January 1, 2021, the 2022 QSR Transaction, effective October 1, 2021, the 2022 Seasoned QSR Transaction, effective July 1, 2022, the 2023 QSR Transaction, effective January 1, 2023 and the 2024 QSR Transaction, effective January 1, 2024 – which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies to panels of third-party reinsurance providers. Each of the third-party reinsurance providers that is party to the QSR Transactions has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.
Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 20.5% of the risk on eligible primary policies written for all periods through December 31, 2017 in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims. NMIC previously ceded 100% of the risk under its pool agreement with Fannie Mae; however, such agreement expired on August 31, 2023 and NMIC no longer cedes pool risk under the 2016 QSR Transaction.
Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.
Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written between April 1, 2020 and December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 36% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.
Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit which was exhausted on October 30, 2021), in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.
Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written between October 30, 2021 and December 31, 2022, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
Under the terms of the 2022 Seasoned QSR Transaction, NMIC cedes premiums earned related to 95% of the net risk on eligible policies primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the retired Oaktown Re Ltd. and Oaktown Re IV Ltd. reinsurance transactions, after the consideration of coverage provided by other QSR Transactions, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 35% ceding commission, and a profit commission of up to 55% that varies directly and inversely with ceded claims.
Under the terms of the 2023 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written in 2023, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.
Under the terms of the 2024 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written in 2024, in exchange or reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 56% that varies directly and inversely with ceded claims.
30
NMIC may terminate any or all of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the RIF ceded under the respective agreements. Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis ( i.e. , reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e. , the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.
See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance” for further discussion of these third-party reinsurance arrangements.
Portfolio Data
The following table presents NIW and primary and pool IIF as of the dates and for the periods indicated. Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above.
NIW and primary and pool IIF
As of and for the three months ended
March 31, 2024 March 31, 2023
NIW
IIF
NIW
IIF
(In Millions)
Monthly $ 9,175 $ 180,343 $ 8,550 $ 166,924
Single 223 19,030 184 19,800
Primary 9,398 199,373 8,734 186,724
Pool — — — 1,025
Total $ 9,398 $ 199,373 $ 8,734 $ 187,749
NIW increased 8% to $9.4 billion for the three months ended March 31, 2024 compared to $8.7 billion for the three months ended March 31, 2023, primarily due to the growth in our customer franchise and market presence tied to the increased penetration of existing customer accounts and new customer activations.
Primary IIF increased 7% at March 31, 2024 compared to March 31, 2023, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies. Our persistency rate improved to 85.8% at March 31, 2024 from 85.1% at March 31, 2023, and remains historically high due to a continued slowdown in the pace of mortgage refinancing activity tied to the prevailing interest and mortgage rate environment.
The following table presents net premiums written and earned for the periods indicated:
Primary premiums written and earned
For the three months ended March 31,
2024 2023
(In Thousands)
Net premiums written $ 130,245 $ 112,976
Net premiums earned 136,657 121,754
Net premiums written and earned increased 15% and 12%, respectively, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by growth in our monthly IIF and monthly pay premium receipts, as well as a decline in the total premiums ceded under our reinsurance treaties. The growth in net premiums earned was partially offset by a decline in the contribution from single premium policy cancellations.
31
Portfolio Statistics
Unless otherwise noted, the portfolio statistics tables presented below do not include the effects of our third-party reinsurance arrangements described above. The table below highlights trends in our primary portfolio as of the dates and for the periods indicated.
Primary portfolio trends As of and for the three months ended
March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023
($ Values In Millions, except as noted below)
New insurance written $ 9,398 $ 8,927 $ 11,334 $ 11,478 $ 8,734
Percentage of monthly premium 98 % 96 % 97 % 98 % 98 %
Percentage of single premium 2 % 4 % 3 % 2 % 2 %
New risk written $ 2,486 $ 2,354 $ 3,027 $ 3,022 $ 2,258
Insurance-in-force (1)
$ 199,373 $ 197,029 $ 194,781 $ 191,306 $ 186,724
Percentage of monthly premium 90 % 90 % 90 % 90 % 89 %
Percentage of single premium 10 % 10 % 10 % 10 % 11 %
Risk-in-force (1)
$ 52,610 $ 51,796 $ 51,011 $ 49,875 $ 48,494
Policies in force (count) (1)
635,662 629,690 622,993 611,441 600,294
Average loan size ($ value in thousands) (1)
$ 314 $ 313 $ 313 $ 313 $ 311
Coverage percentage (2)
26.4 % 26.3 % 26.2 % 26.1 % 26.0 %
Loans in default (count) (1)
5,109 5,099 4,594 4,349 4,475
Default rate (1)
0.80 % 0.81 % 0.74 % 0.71 % 0.75 %
Risk-in-force on defaulted loans (1)
$ 414 $ 408 $ 359 $ 335 $ 337
Average net premium yield (3)
0.28 % 0.27 % 0.27 % 0.27 % 0.26 %
Earnings from cancellations $ 0.6 $ 1.0 $ 0.9 $ 1.1 $ 1.4
Annual persistency (4)
85.8 % 86.1 % 86.2 % 86.0 % 85.1 %
Quarterly run-off (5)
3.6 % 3.4 % 4.1 % 3.7 % 3.2 %
(1) Reported as of the end of the period.
(2) Calculated as end of period RIF divided by end of period IIF.
(3) Calculated as net premiums earned divided by average primary IIF for the period, annualized.
(4) Defined as the percentage of IIF that remains on our books after a given twelve-month period.
(5) Defined as the percentage of IIF that is no longer on our books after a given three-month period.
The table below presents a summary of the change in total primary IIF for the dates and periods indicated.
Primary IIF As of and for the three months ended March 31,
2024 2023
(In Millions)
IIF, beginning of period $ 197,029 $ 183,968
NIW 9,398 8,734
Cancellations, principal repayments and other reductions (7,054) (5,978)
IIF, end of period $ 199,373 $ 186,724
We consider a “book” to be a collective pool of policies insured during a particular period, normally a calendar year. In general, the majority of underwriting profit, calculated as earned premium revenue minus claims and underwriting and operating expenses, generated by a particular book year emerges in the years immediately following origination. This pattern generally occurs because relatively few of the claims that a book will ultimately experience typically occur in the first few years following origination, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments), and by increasing losses.
32
The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.
Primary IIF and RIF As of March 31,
2024 2023
IIF RIF IIF RIF
Book year
(In Millions)
2024 $ 9,326 $ 2,466 $ — $ —
2023 37,676 9,924 8,674 2,243
2022 51,809 13,759 55,664 14,730
2021 59,306 15,569 70,771 18,195
2020 25,939 6,871 32,679 8,403
2019 and before 15,317 4,021 18,936 4,923
Total $ 199,373 $ 52,610 $ 186,724 $ 48,494
We utilize certain risk principles that form the basis of how we underwrite and originate NIW. We have established prudential underwriting standards and loan-level eligibility matrices which prescribe the maximum LTV, minimum borrower FICO score, maximum borrower debt-to-income (DTI) ratio, maximum loan size, property type, loan type, loan term and occupancy status of loans that we will insure and memorialized these standards and eligibility matrices in our Underwriting Guideline Manual that is publicly available on our website. Our underwriting standards and eligibility criteria are designed to limit the layering of risk in a single insurance policy. “Layered risk” refers to the accumulation of borrower, loan and property risk. For example, we have higher credit score and lower maximum allowed LTV requirements for investor-owned properties, compared to owner-occupied properties. We monitor the concentrations of various risk attributes in our insurance portfolio, which may change over time, in part, as a result of regional conditions or public policy shifts.
The tables below present our primary NIW by FICO, LTV and purchase/refinance mix for the periods indicated. We calculate the LTV of a loan as the percentage of the original loan amount to the original purchase value of the property securing the loan.
Primary NIW by FICO For the three months ended March 31,
2024 2023
(In Millions)
>= 760 $ 4,888 $ 5,251
740-759 1,797 1,514
720-739 1,220 1,107
700-719 780 456
680-699 530 342
<=679 183 64
Total $ 9,398 $ 8,734
Weighted average FICO 757 762
Primary NIW by LTV For the three months ended March 31,
2024 2023
(In Millions)
95.01% and above $ 1,062 $ 358
90.01% to 95.00% 4,414 4,085
85.01% to 90.00% 2,931 3,234
85.00% and below 991 1,057
Total $ 9,398 $ 8,734
Weighted average LTV 92.3 % 91.6 %
33
Primary NIW by purchase/refinance mix For the three months ended March 31,
2024 2023
(In Millions)
Purchase $ 9,157 $ 8,494
Refinance
241 240
Total $ 9,398 $ 8,734
The tables below present our total primary IIF and RIF by FICO and LTV, and total primary RIF by loan type as of the dates indicated.
Primary IIF by FICO As of March 31,
2024 2023
($ Values In Millions)
>= 760 $ 99,195 50 % $ 91,623 49 %
740-759 35,416 18 33,156 18
720-739 28,033 14 26,233 14
700-719 18,904 9 18,203 10
680-699 13,002 7 12,502 6
<=679 4,823 2 5,007 3
Total $ 199,373 100 % $ 186,724 100 %
Primary RIF by FICO As of March 31,
2024 2023
($ Values In Millions)
>= 760 $ 25,935 49 % $ 23,472 48 %
740-759 9,392 18 8,692 18
720-739 7,484 14 6,903 14
700-719 5,089 10 4,847 10
680-699 3,479 7 3,311 7
<=679 1,231 2 1,269 3
Total $ 52,610 100 % $ 48,494 100 %
Primary IIF by LTV As of March 31,
2024 2023
($ Values In Millions)
95.01% and above $ 20,277 10 % $ 17,583 9 %
90.01% to 95.00% 97,028 49 89,125 48
85.01% to 90.00% 61,169 31 56,425 30
85.00% and below 20,899 10 23,591 13
Total $ 199,373 100 % $ 186,724 100 %
Primary RIF by LTV As of March 31,
2024 2023
($ Values In Millions)
95.01% and above $ 6,275 12 % $ 5,413 11 %
90.01% to 95.00% 28,663 54 26,326 54
85.01% to 90.00% 15,174 29 13,937 29
85.00% and below 2,498 5 2,818 6
Total $ 52,610 100 % $ 48,494 100 %
34
Primary RIF by Loan Type As of March 31,
2024 2023
Fixed 98 % 98 %
Adjustable rate mortgages:
Less than five years — —
Five years and longer 2 2
Total 100 % 100 %
The table below presents selected primary portfolio statistics, by book year, as of March 31, 2024.
As of March 31, 2024
Book Year Original Insurance Written Remaining Insurance in Force % Remaining of Original Insurance Policies Ever in Force Number of Policies in Force Number of Loans in Default # of Claims Paid Incurred Loss Ratio (Inception to Date) (1)
Cumulative Default Rate (2)
Current Default Rate (3)
($ Values In Millions)
2015 and prior $ 16,035 $ 1,063 7 % 67,989 6,088 101 200 2.7 % 0.4 % 1.7 %
2016 21,187 1,881 9 % 83,626 10,119 190 174 1.8 % 0.4 % 1.9 %
2017 21,582 2,350 11 % 85,897 13,036 293 160 2.2 % 0.5 % 2.2 %
2018 27,295 2,811 10 % 104,043 14,889 439 157 2.9 % 0.6 % 2.9 %
2019 45,141 7,212 16 % 148,423 31,251 491 67 2.1 % 0.4 % 1.6 %
2020 62,702 25,939 41 % 186,174 88,166 545 24 1.7 % 0.3 % 0.6 %
2021 85,574 59,306 69 % 257,972 191,719 1,436 34 4.2 % 0.6 % 0.7 %
2022 58,734 51,809 88 % 163,281 148,868 1,354 12 19.2 % 0.8 % 0.9 %
2023 40,473 37,676 93 % 111,994 106,285 260 1 10.8 % 0.2 % 0.2 %
2024 9,398 9,326 99 % 25,386 25,241 — — — % — % — %
Total $ 388,121 $ 199,373 1,234,785 635,662 5,109 829
(1) Calculated as total claims incurred (paid and reserved) divided by cumulative premiums earned, net of reinsurance.
(2) Calculated as the sum of the number of claims paid ever to date and number of loans in default divided by policies ever in force.
(3) Calculated as the number of loans in default divided by number of policies in force.
35
Geographic Dispersion
The following table shows the distribution by state of our primary RIF as of the dates indicated. The distribution of our primary RIF as of March 31, 2024 is not necessarily representative of the geographic distribution we expect in the future.
Top 10 primary RIF by state As of March 31,
2024 2023
California 10.2 % 10.5 %
Texas 8.8 8.8
Florida 7.5 8.0
Georgia 4.2 4.1
Washington 3.9 4.0
Illinois 3.9 3.9
Virginia 3.9 4.1
Pennsylvania 3.4 3.4
Colorado 3.2 3.5
Maryland 3.2 3.3
Total 52.2 % 53.6 %
Insurance Claims and Claim Expenses
Insurance claims and claim expenses incurred represent estimated future payments on newly defaulted insured loans and any change in our claim estimates for previously existing defaults. Claims incurred are generally affected by a variety of factors, including the macroeconomic environment, national and regional unemployment trends, changes in housing values, borrower risk characteristics, LTV ratios and other loan level risk attributes, the size and type of loans insured, the percentage of coverage on insured loans, and the level of reinsurance coverage maintained against insured exposures.
Reserves for claims and claim expenses are established for mortgage loans that are in default. A loan is considered to be in default as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments. We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as IBNR. We also establish reserves for claim expenses, which represent the estimated cost of the claim administration process, including legal and other fees and other general expenses of administering the claim settlement process. Reserves are not established for future claims on insured loans which are not currently reported or which we estimate are not currently in default.
Reserves are established by estimating the number of loans in default that will result in a claim payment, which is referred to as claim frequency, and the amount of the claim payment expected to be paid on each such loan in default, which is referred to as claim severity. Claim frequency and severity estimates are established based on historical observed experience regarding certain loan factors, such as age of the default, cure rates, size of the loan and estimated change in property value. Reserves are released the month in which a loan in default is brought current by the borrower, which is referred to as a cure. Adjustments to reserve estimates are reflected in the period in which the adjustment is made. Reserves are also ceded to reinsurers under the QSR Transactions, ILN Transactions and XOL Transactions as applicable under each treaty. We have not yet ceded reserves under any of the ILN Transactions or XOL Transactions as incurred claims and claim expenses on each respective reference pool remain within our retained coverage layer for each transaction.
Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs that may be made available to certain defaulted borrowers. The effectiveness of forbearance and other such assistance programs can be further enhanced by the availability of various repayment and loan modification options which typically allow borrowers to amortize or, in certain instances, outright defer payments otherwise missed during a period of dislocation over an extended length of time. We generally observe that forbearance, repayment and modification, and other assistance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations, and note higher cure rates on defaults benefitting from broad-based assistance programs than would otherwise be expected on similarly situated loans that did not benefit from such programs.
36
In response to the COVID-19 pandemic, politicians, regulators, lenders, loan servicers and others offered extraordinary assistance to dislocated borrowers through, among other programs, the forbearance, foreclosure moratorium and other assistance programs codified under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The FHFA and GSEs offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status.
The actual claims we incur as our portfolio matures are difficult to predict and depend on the specific characteristics of our current in-force book (including the credit score and DTI ratio of the borrower, the LTV ratio of the mortgage and geographic concentrations, among others), as well as the risk profile of new business we write in the future. In addition, claims experience will be affected by macroeconomic factors such as housing prices, interest rates, unemployment rates and other events, such as natural disasters or global pandemics, and any federal, state or local governmental response thereto.
Macroeconomic factors, including persistent inflation, elevated interest rates, flagging consumer confidence and increasing jobless claims could have a pronounced impact on the housing market, the mortgage insurance industry and our business in future periods. A marked decline in housing demand, a significant and protracted decrease in house prices, or a sustained increase in unemployment could contribute to an increase in our future default and claims experience.
The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claim expenses:
For the three months ended March 31,
2024 2023
(In Thousands)
Beginning balance $ 123,974 $ 99,836
Less reinsurance recoverables (1)
(27,514) (21,587)
Beginning balance, net of reinsurance recoverables 96,460 78,249
Add claims incurred:
Claims and claim expenses incurred:
Current year (2)
32,976 27,608
Prior years (3)
(29,282) (20,907)
Total claims and claim expenses incurred 3,694 6,701
Less claims paid:
Claims and claim expenses paid:
Current year (2)
— —
Prior years (3)
852 272
Total claims and claim expenses paid 852 272
Reserve at end of period, net of reinsurance recoverables 99,302 84,678
Add reinsurance recoverables (1)
27,880 23,479
Ending balance $ 127,182 $ 108,157
(1) Related to ceded losses recoverable under the QSR Transactions. See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance” for additional information.
(2) Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan defaulted in a prior year and subsequently cured and later re-defaulted in the current year, the default would be included in the current year. Amounts are presented net of reinsurance and included $25.9 million attributed to net case reserves and $6.6 million attributed to net IBNR reserves for the three months ended March 31, 2024 and $22.3 million attributed to net case reserves and $4.9 million attributed to net IBNR reserves for the three months ended March 31, 2023.
37
(3) Related to insured loans with defaults occurring in prior years, which have been continuously in default before the start of the current year. Amounts are presented net of reinsurance and included $22.4 million attributed to net case reserves and $6.3 million attributed to net IBNR reserves for the three months ended March 31, 2024 and $16.2 million attributed to net case reserves and $4.5 million attributed to net IBNR reserves for the three months ended March 31, 2023.
The “ claims incurred ” section of the table above shows claims and claim expenses incurred on defaults occurring in current and prior years, including IBNR reserves and is presented net of reinsurance. We may increase or decrease our claim estimates and reserves as we learn additional information about individual defaulted loans and continue to observe and analyze loss development trends in our portfolio. Gross reserves of $85.1 million related to prior year defaults remained as of March 31, 2024.
The following table provides a reconciliation of the beginning and ending count of loans in default:
For the three months ended March 31,
2024 2023
Beginning default inventory 5,099 4,449
Plus: new defaults 1,876 1,558
Less: cures (1,817) (1,507)
Less: claims paid (42) (21)
Less: rescission and claims denied (7) (4)
Ending default inventory 5,109 4,475
Ending default inventory increased from March 31, 2023 to March 31, 2024, primarily due to the growth and natural seasoning of our insured portfolio, largely offset by cure activity within our default population during the intervening period.
The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions for the periods indicated:
For the three months ended March 31,
2024 2023
($ Values In Thousands)
Number of claims paid (1)
42 21
Total amount paid for claims $ 1,145 $ 344
Average amount paid per claim
$ 27 $ 16
Severity (2)
54 % 39 %
(1) Count includes 16 and seven claims settled without payment during the three months ended March 31, 2024 and 2023, respectively.
(2) Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including claims settled without payment.
We paid 42 and 21 claims during the three months ended March 31, 2024 and 2023, respectively. The number of claims paid in each period was modest relative to the size of our insured portfolio and we generally observe that the borrowers of the loans we insure are well-situated with strong credit profiles, stable 30-year fixed rate mortgages, manageable debt service obligations and significant appreciated equity in their homes. An increase in the value of the homes collateralizing the mortgages we insure provides defaulted borrowers with alternative paths and incentives to cure their loan prior to the development of a claim.
Our claims severity for the three months ended March 31, 2024 and 2023 was 54% and 39%, respectively. Our claims severity for each period was below long-term industry norms and benefited from the same broad national house price appreciation that supported our claims paid experience. An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure and raises the prospect of a third-party sale of a foreclosed property, which can mitigate the severity of our settled claims.
The number of claims paid and our severity experience in future periods may be impacted by developing economic cycles and each could increase if house price declines serve to limit the alternative paths and incentives to cure delinquencies that are available to defaulted borrowers or erode the equity value of the homes collateralizing the mortgages we insure.
38
The following table provides detail on our average reserve per default, before giving effect to reserves ceded under the QSR Transactions, as of the dates indicated:
Average reserve per default: As of March 31,
2024 2023
(In Thousands)
Case (1)
$ 22.9 $ 22.4
IBNR (1)(2)
2.0 1.8
Total $ 24.9 $ 24.2
(1) Defined as the gross reserve per insured loan in default.
(2) Amount includes claims adjustment expenses.
Average reserve per default increased from March 31, 2023 to March 31, 2024, primarily due to changes in the composition of our default inventory as measured by the size, vintage and current estimated LTV of defaulted loans, as well as the proportion of such loans benefiting from a forbearance program granted in response to a financial hardship related to COVID-19. Average reserves per default were further impacted by changes in observed and forecasted housing market conditions and macroeconomic factors between the measurement dates.
GSE Oversight
As an approved insurer , NMIC is subject to ongoing compliance with the PMIERs established by each of the GSEs ( italicized terms have the same meaning that such terms have in the PMIERs, as described below). The PMIERs establish operational, business, remedial and financial requirements applicable to approved insurers . The PMIERs financial requirements prescribe a risk-based methodology whereby the amount of assets required to be held against each insured loan is determined based on certain loan-level risk characteristics, such as FICO, vintage (year of origination), performing vs. non-performing ( i.e., current vs. delinquent), LTV ratio and other risk features. In general, higher quality loans carry lower asset charges.
Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets , which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount. The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions, XOL Transactions and QSR Transactions. The aggregate gross risk-based required asset amount for performing, primary insurance is subject to a floor of 5.6% of performing primary adjusted RIF .
By April 15th of each year, NMIC must certify it met all PMIERs requirements as of December 31st of the prior year. We certified to the GSEs by April 15, 2024 that NMIC was in full compliance with the PMIERs as of December 31, 2023. NMIC also has an ongoing obligation to immediately notify the GSEs in writing upon discovery of a failure to meet one or more of the PMIERs requirements. We continuously monitor NMIC's compliance with the PMIERs.
The following table provides a comparison of the PMIERs available assets and net risk-based required asset amount as reported by NMIC as of the dates indicated:
As of March 31,
2024 2023
(In Thousands)
Available assets $ 2,821,803 $ 2,480,882
Net risk-based required assets
1,561,655 1,231,780
Available assets were $2.8 billion at March 31, 2024, compared to $2.5 billion at March 31, 2023. The $341 million increase in available assets between the dates presented was primarily driven by NMIC's positive cash flow from operations during the intervening period, partially offset by the payment of an ordinary course dividend from NMIC to NMIH in May 2023.
Net risk-based required assets were $1.6 billion at March 31, 2024, compared to $1.2 billion at March 31, 2023. The $330 million increase in the risk-based required asset amount between the dates presented was primarily due to the growth in our
39
gross RIF and aggregate gross risk-based required asset amount. Net risk-based required assets reflect $1.8 billion and $1.9 billion, respectively, of aggregate PMIERs risk-based required asset credit for reinsurance as of March 31, 2024 and 2023.
Consolidated Results of Operations
Consolidated statements of operations For the three months ended March 31,
2024 2023
Revenues ($ In Thousands, except for per share data)
Net premiums earned $ 136,657 $ 121,754
Net investment income 19,436 14,894
Net realized investment losses — (33)
Other revenues 160 164
Total revenues 156,253 136,779
Expenses
Insurance claims and claim expenses 3,694 6,701
Underwriting and operating expenses 29,815 25,786
Service expenses 137 80
Interest expense 8,040 8,039
Total expenses 41,686 40,606
Income before income taxes 114,567 96,173
Income tax expense 25,517 21,715
Net income $ 89,050 $ 74,458
Earnings per share - Basic $ 1.10 $ 0.89
Earnings per share - Diluted $ 1.08 $ 0.88
Loss ratio (1)
2.7 % 5.5 %
Expense ratio (2)
21.8 % 21.2 %
Combined ratio
24.5 % 26.7 %
For the three months ended March 31,
Non-GAAP financial measures (3)
2024 2023
($ In Thousands, except for per share data)
Adjusted income before tax $ 114,567 $ 96,206
Adjusted net income 89,050 74,484
Adjusted diluted EPS 1.08 0.88
(1) Loss ratio is calculated by dividing insurance claims and claim expenses by net premiums earned.
(2) Expense ratio is calculated by dividing underwriting and operating expenses by net premiums earned.
(3) See “ Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures,” below.
Revenues
Net premiums earned were $136.7 million for the three months ended March 31, 2024, compared to $121.8 million for the three months ended March 31, 2023. The increase in net premiums earned was primarily driven by growth in our monthly IIF and monthly pay premium receipts, as well as a decline in the total premiums ceded under our reinsurance treaties, partially offset by a decline in the contribution from single premium policy cancellations.
Net investment income was $19.4 million for the three months ended March 31, 2024, compared to $14.9 million for the three months ended March 31, 2023. The increase in net investment income was primarily driven by an increase in the book yield of our investment portfolio tied to the deployment of new cash flows and reinvestment of rolling maturities at incrementally higher rates, as well as growth in the size of our total invested asset base.
40
Other revenues were $0.2 million for the three months ended March 31, 2024 and 2023. Other revenues represent underwriting fee revenue generated by our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators. Changes in other revenues primarily reflect changes in NMIS' outsourced loan review volume. Amounts recognized in other revenues generally correspond with amounts incurred as service expenses for outsourced loan review activities in the same periods.
Expenses
We recognize insurance claims and claim expenses in connection with the loss experience of our insured portfolio and incur other underwriting and operating expenses, including employee compensation and benefits, policy acquisition costs, and technology, professional services and facilities expenses, in connection with the development and operation of our business. We also incur service expenses in connection with NMIS' outsourced loan review activities.
Insurance claims and claim expenses were $3.7 million for the three months ended March 31, 2024, compared to $6.7 million for the three months ended March 31, 2023. The decrease in insurance claims and claim expenses for the three months ended March 31, 2024 was primarily driven by the release of a portion of the reserves we established for anticipated claims payments in prior periods (in connection with cure activity and ongoing analysis of loss development trends), partially offset by the establishment of initial reserves on newly defaulted loans during the period, as well as an increase in the average case reserve held against previously defaulted loans that aged in their delinquent status.
Underwriting and operating expenses were $29.8 million for the three months ended March 31, 2024, compared to $25.8 million for the three months ended March 31, 2023. The increase in underwriting and operating expenses primarily reflects an increase in employee compensation costs and the adjustments to the amortization of certain deferred policy acquisition costs.
Service expenses were $0.1 million for the three months ended March 31, 2024 and 2023. Service expenses represent third-party costs incurred by NMIS in connection with the services it provides. Changes in service expenses primarily reflect changes in NMIS' outsourced loan review volume. Amounts incurred as service expenses generally correspond with amounts recognized in other revenues in the same periods.
Interest expense was $8.0 million for the three months ended March 31, 2024 and 2023. Interest expense primarily reflects the carrying costs of the Notes. See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.”
Income tax expense was $25.5 million for the three months ended March 31, 2024, compared to $21.7 million for the three months ended March 31, 2023. The increase in income tax expense was primarily driven by growth in our pre-tax income. Our effective tax rate on pre-tax income was 22.3% for the three months ended March 31, 2024, compared to 22.6% for the three months ended March 31, 2023. As a U.S. taxpayer, we are subject to a statutory U.S. federal corporate income tax rate of 21%. Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year and reflects the impact of discrete tax effects in the period in which they occur. Our effective tax rates for the three months ended March 31, 2024 and 2023 reflect the discrete tax effects of the vesting of RSUs and exercise of options. See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 8, Income Taxes.”
Net Income
Net income and adjusted net income were $89.0 million each for the three months ended March 31, 2024, compared to $74.5 million each for the three months ended March 31, 2023. The increases in net income and adjusted net income were primarily driven by growth in our total revenues, as well as a decline in our insurance claims and claim expenses, partially offset by increases in our underwriting and operating expenses and income tax expense.
Diluted EPS and adjusted diluted EPS were $1.08 each for the three months ended March 31, 2024, compared to $0.88 each for the three months ended March 31, 2023. Diluted and adjusted diluted EPS increased primarily due to growth in our net income and adjusted net income, as well as a decline in the number of weighted average diluted shares outstanding tied to share repurchase activity.
The non-GAAP financial measures of adjusted income before tax, adjusted net income and adjusted diluted EPS are presented to enhance the comparability of financial results between periods.
41
Non-GAAP Financial Measure Reconciliations For the three months ended March 31,
2024 2023
As reported ($ In Thousands, except for per share data)
Income before income taxes $ 114,567 $ 96,173
Income tax expense 25,517 21,715
Net income $ 89,050 $ 74,458
Adjustments
Net realized investment losses
— 33
Adjusted income before tax $ 114,567 $ 96,206
Income tax expense on adjustments (1)
— 7
Adjusted net income $ 89,050 $ 74,484
Weighted average diluted shares outstanding 82,099 84,840
Adjusted diluted EPS $ 1.08 $ 0.88
(1) Marginal tax impact of non-GAAP adjustments is calculated based on our statutory U.S. federal corporate income tax rate of 21%, except for those items that are not eligible for an income tax deduction.
Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures
We believe the use of the non-GAAP measures of adjusted income before tax, adjusted net income and adjusted diluted EPS enhances the comparability of our fundamental financial performance between periods, and provides relevant information to investors. These non-GAAP financial measures align with the way the company's business performance is evaluated by management. These measures are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. These measures have been presented to increase transparency and enhance the comparability of our fundamental operating trends across periods. Other companies may calculate these measures differently; their measures may not be comparable to those we calculate and present.
Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of net realized gains or losses from our investment portfolio, periodic costs incurred in connection with capital markets transactions, and other infrequent, unusual or non-operating items in the periods in which such items are incurred.
Adjusted net income is defined as GAAP net income, excluding the after-tax effects of net realized gains or losses from our investment portfolio, periodic costs incurred in connection with capital markets transactions, and other infrequent, unusual or non-operating items in the periods in which such items are incurred. Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.
Adjusted diluted EPS is defined as adjusted net income divided by adjusted weighted average diluted shares outstanding. Adjusted weighted average diluted shares outstanding is defined as weighted average diluted shares outstanding, adjusted for changes in the dilutive effect of non-vested shares that would otherwise have occurred had GAAP net income been calculated in accordance with adjusted net income. There will be no adjustment to weighted average diluted shares outstanding in the years that non-vested shares are anti-dilutive under GAAP.
Although adjusted income before tax, adjusted net income and adjusted diluted EPS exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items: (1) are not viewed as part of the operating performance of our primary activities; or (2) are impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, and the reasons for their treatment, are described below.
• Net realized investment gains and losses . The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.
• Capital markets transaction costs . Capital markets transaction costs result from activities that are undertaken to improve our debt profile or enhance our capital position through activities such as debt refinancing and capital markets
42
reinsurance transactions that may vary in their size and timing due to factors such as market opportunities, tax and capital profile, and overall market cycles.
• Other infrequent, unusual or non-operating items . Items that are the result of unforeseen or uncommon events, and are not expected to recur with frequency in the future. Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance. Past adjustments under this category include infrequent, unusual or non-operating adjustments related to severance, restricted stock modification and other expenses incurred in connection with the CEO transition announced in September 2021 and the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017. We believe such items are infrequent or non-recurring in nature, and are not indicative of the performance of, or ongoing trends in, our primary operating activities or business.
Consolidated balance sheets March 31, 2024 December 31, 2023
(In Thousands)
Total investment portfolio $ 2,393,525 $ 2,371,021
Cash and cash equivalents 139,726 96,689
Premiums receivable 75,362 76,456
Deferred policy acquisition costs, net 62,801 62,905
Software and equipment, net 30,308 30,252
Reinsurance recoverable 27,880 27,514
Prepaid federal income taxes 235,286 235,286
Other assets 41,224 40,384
Total assets $ 3,006,112 $ 2,940,507
Debt $ 398,001 $ 397,595
Unearned premiums 85,784 92,295
Accounts payable and accrued expenses 81,831 86,189
Reserve for insurance claims and claim expenses 127,182 123,974
Deferred tax liability, net 322,651 301,573
Other liabilities (1)
12,282 12,877
Total liabilities 1,027,731 1,014,503
Total shareholders' equity 1,978,381 1,926,004
Total liabilities and shareholders' equity $ 3,006,112 $ 2,940,507
(1) “Reinsurance funds withheld ” has been reclassified as “Other liabilities ” in the prior period.
Total cash and investments were $2.5 billion as of March 31, 2024 and December 31, 2023. Cash and investments at March 31, 2024 included $91.9 million held by NMIH. The increase in total cash and investments reflects the addition of incremental cash provided by operating activities, partially offset by share repurchase activity and an increase in the unrealized loss position of our fixed income portfolio primarily tied to changes in interest rates during the three months ended March 31, 2024.
Premiums receivable was $75.4 million as of March 31, 2024, compared to $76.5 million as of December 31, 2023. The decrease was primarily driven by the settlement of previously outstanding receivables, partially offset by the growth of our monthly premium policies in force, where premiums are generally paid one month in arrears.
Net deferred policy acquisition costs were $62.8 million as of March 31, 2024, compared to $62.9 million as of December 31, 2023. The decrease was primarily driven by the recognition of previously deferred policy acquisition costs between the respective balance sheet dates, and was partially offset by the deferral of certain costs associated with the origination of new policies.
Reinsurance recoverable was $27.9 million as of March 31, 2024, compared to $27.5 million as of December 31, 2023. The increase was driven by an increase in ceded losses recoverable under our QSR Transactions.
43
Prepaid federal income taxes were $235.3 million as of March 31, 2024 and December 31, 2023. Prepaid federal income taxes represent tax and loss bonds purchased in connection with our claimed tax deduction for our statutory contingency reserve position. See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 8, Income Taxes.”
Other assets were $41.2 million as of March 31, 2024, compared to $40.4 million as of December 31, 2023. The increase was primarily driven by an increase in prepaid expenses, partially offset by a reduction in our right-of-use assets tied to the amortization of the operating lease for our corporate headquarters.
Unearned premiums were $85.8 million as of March 31, 2024, compared to $92.3 million as of December 31, 2023. The decrease was driven by the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies and the cancellations of other single premium policies, partially offset by single premium policy originations during the three months ended March 31, 2024.
Accounts payable and accrued expenses were $81.8 million as of March 31, 2024, compared to $86.2 million as of December 31, 2023. The decrease was primarily driven by the settlement of previously accrued compensation expenses and premium taxes payable, partially offset by an increase in accrued and unpaid interest on the Notes which is payable semi-annually in June and December.
Reserve for insurance claims and claim expenses was $127.2 million as of March 31, 2024, compared to $124.0 million as of December 31, 2023. The increase was primarily driven by the establishment of initial reserves on newly defaulted loans during the three months ended March 31, 2024, as well as an increase in the average case reserve held against previously defaulted loans that aged in their delinquent status. The increase in the reserves for insurance claims and claim expenses was partially offset by the release of a portion of the reserves we established for anticipated claims payments in prior periods (in connection with cure activity and ongoing analysis of recent loss development trends), as well as the payment of previously reserved claims during the period. See “ Insurance Claims and Claim Expenses ,” above for further details.
Net deferred tax liability was $322.7 million as of March 31, 2024, compared to $301.6 million as of December 31, 2023. The increase was primarily due to an increase in the claimed deductibility of our statutory contingency reserve, partially offset by the increase in unrealized losses recorded in other comprehensive income. For further information regarding income taxes and their impact on our results of operations and financial position, see Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 8, Income Taxes .”
The following table summarizes our consolidated cash flows from operating, investing and financing activities:
Consolidated cash flows For the three months ended March 31,
2024 2023
Net cash provided by (used in): (In Thousands)
Operating activities $ 111,574 $ 89,835
Investing activities (37,752) (33,751)
Financing activities (30,785) (17,406)
Net increase in cash and cash equivalents $ 43,037 $ 38,678
Net cash provided by operating activities was $111.6 million for the three months ended March 31, 2024, compared to $89.8 million for the three months ended March 31, 2023. Cash provided by operating activities increased during the three months ended March 31, 2024, primarily due to an increase in our net premium receipts, growth in our investment income and a reduction in technology service costs paid under our long-term IT services agreement with TCS, partially offset by an increase in short-term employee incentive payments, premium taxes paid and net claim settlement costs.
Cash used in investing activities for the three months ended March 31, 2024 and 2023 reflects the purchase of fixed and short-term maturities with cash provided by operating activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.
Cash used in financing activities was $30.8 million for the three months ended March 31, 2024, compared to $17.4 million for the three months ended March 31, 2023. Cash used in financing activities primarily relates to the repurchase of common stock and taxes paid on the net share settlement of equity awards for certain employees.
44
Liquidity and Capital Resources
NMIH serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own. NMIH's principal liquidity demands include funds for (i) payment of certain corporate expenses; (ii) payment of certain reimbursable expenses of its insurance subsidiaries; (iii) payment of the interest related to the Notes and 2021 Revolving Credit Facility; (iv) tax payments to the Internal Revenue Service; (v) capital support for its subsidiaries; (vi) repurchase of its common stock; and (vii) payment of dividends, if any, on its common stock. NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations).
As of March 31, 2024, NMIH had $91.9 million of cash and investments. NMIH's principal sources of net cash are dividends from its subsidiaries and investment income. NMIC has the capacity to pay $96.3 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2024. NMIH also has access to $250 million of undrawn revolving credit capacity under the 2021 Revolving Credit Facility. See Item 1, “ Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.”
On February 10, 2022, our Board of Directors authorized a $125 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2023. On July 31, 2023, our Board of Directors authorized a new $200 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2025. Concurrent with the new authorization, our Board of Directors also approved an extension of our existing $125 million share repurchase program through December 31, 2025 to align its remaining tenor with that of the new $200 million program. The authorization provides NMIH the flexibility, based on market and business conditions, stock price and other factors, to repurchase stock from time to time through open market repurchases, privately negotiated transactions, or other means, including pursuant to Rule 10b5-1 trading plans.
During the three months ended March 31, 2024, NMIH repurchased 0.8 million shares of common stock at a total cost of $25.3 million, including associated costs and applicable taxes. As of March 31, 2024, NMIH had $151.8 million of repurchase authority remaining.
NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, with such approvals subject to change or revocation at any time. Among such agreements, the Wisconsin OCI has approved the allocation of interest expense on the Notes and the 2021 Revolving Credit Facility to NMIC to the extent proceeds from such offering and facility are distributed to NMIC or used to repay, redeem or otherwise defease amounts raised by NMIC under prior credit arrangements that have previously been distributed to NMIC.
The Notes mature on June 1, 2025 and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1. The 2021 Revolving Credit Facility matures on the earlier of (x) November 29, 2025 or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025, and accrues interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility, subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum, or (ii) the Adjusted Term SOFR Rate (as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375% to 2.875% per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time. Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations.
Under the 2021 Revolving Credit Facility, NMIH is required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of March 31, 2024, the applicable commitment fee was 0.225%.
We are subject to certain covenants under the 2021 Revolving Credit Facility, including: a maximum debt-to-total capitalization ratio of 35%, a requirement to maintain compliance with the PMIERs financial requirements (subject to any GSE approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein). We were in compliance with all covenants at March 31, 2024.
NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and by the GSEs. Under Wisconsin law, NMIC and Re One may pay dividends up to specified levels ( i.e., “ordinary” dividends) with 30 days' prior notice to the Wisconsin OCI. Dividends in larger amounts, or “extraordinary” dividends, are subject to the Wisconsin OCI's prior approval. Under Wisconsin insurance laws, an extraordinary dividend is defined as any payment or distribution that, together with other dividends and distributions made within the preceding twelve months, exceeds the lesser of (i) 10% of the insurer's statutory policyholders' surplus as of the preceding December 31 or (ii) adjusted statutory net income for the twelve-month period ending the preceding December 31 . NMIC has the capacity to pay
45
$96.3 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2024.
As an approved insurer under PMIERs, NMIC would generally be subject to additional restrictions on its ability to pay dividends to NMIH if it failed to meet the financial requirements prescribed by PMIERs. Approved insurers that fail to meet the prescribed PMIERs financial requirements are not permitted to pay dividends without prior approval from the GSEs.
NMIH may require liquidity to fund the capital needs of its insurance subsidiaries. NMIC's capital needs depend on many factors including its ability to successfully write new business, establish premium rates at levels sufficient to cover claims and operating costs, access the reinsurance markets and meet minimum required asset thresholds under the PMIERs and minimum state capital requirements (respectively, as defined therein).
As an approved mortgage insurer and Wisconsin-domiciled carrier, NMIC is required to satisfy financial and/or capitalization requirements stipulated by each of the GSEs and the Wisconsin OCI. The financial requirements stipulated by the GSEs are outlined in the PMIERs. Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million. At March 31, 2024, NMIC reported $2,822 million available assets against $1,562 million net risk-based required assets for a $1,260 million “excess” funding position.
The risk-based required asset amount under PMIERs is determined at an individual policy-level based on the risk characteristics of each insured loan. Loans with higher risk factors, such as higher LTVs or lower borrower FICO scores, are assessed a higher charge. Non-performing loans that have missed two or more payments are generally assessed a significantly higher charge than performing loans, regardless of the underlying borrower or loan risk profile; however, special consideration is given under PMIERs to loans that are delinquent on homes located in an area declared by the Federal Emergency Management Agency to be a Major Disaster zone eligible for Individual Assistance. In June 2020, the GSEs issued guidance (which was subsequently amended and restated) on the risk-based treatment of loans affected by the COVID-19 pandemic. Under the guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a 70% risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.
NMIC's PMIERs minimum risk-based required asset amount is also adjusted for its reinsurance transactions (as approved by the GSEs). Under NMIC's quota share reinsurance treaties, it receives credit for the PMIERs risk-based required asset amount on ceded RIF. As its gross PMIERs risk-based required asset amount on ceded RIF increases, the PMIERs credit for ceded RIF automatically increases as well (in an unlimited amount). Under NMIC's ILN and XOL Transactions, it generally receives credit for the PMIERs risk-based required asset amount on ceded RIF to the extent such requirement is within the subordinated coverage (excess of loss detachment threshold) afforded by the transaction.
NMIC is also subject to state regulatory minimum capital requirements based on its RIF. Formulations of this minimum capital vary by state, however, the most common measure allows for a maximum ratio of RIF to statutory capital (commonly referred to as RTC) of 25:1. The RTC calculation does not assess a different charge or impose a different threshold RTC limit based on the underlying risk characteristics of the insured portfolio. Non-performing loans are treated the same as performing loans under the RTC framework. As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard.
As of March 31, 2024, NMIC had a RTC ratio of 11.7:1 with $31.1 billion of performing primary RIF, net of reinsurance, and $2.6 billion of total statutory capital, including contingency reserves. Re One has no risk in force remaining and no longer reports a RTC ratio.
NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings. At March 31, 2024, NMIC had $2.4 billion of cash and investments, including $76.9 million of cash and cash equivalents. NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions (iii) claims payments, and (iv) taxes as due or otherwise deferred through the purchase of tax and loss bonds. NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period. During the twelve-month period ended March 31, 2024, NMIC generated $340 million of cash flow from operations and received an additional $240 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio. NMIC is not a party to any contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path ( i.e. , are of a contractually predetermined amount and due at a contractually predetermined date). NMIC's only use of cash that develops along an unscheduled path is claims payments. Given the relatively small size of our current population of defaulted policies, the generally extended duration of the default-to-foreclosure-to-claim cycle, and the potential availability of forbearance,
46
foreclosure moratorium and other borrower assistance programs (which were broadly applied in response to the COVID-19 pandemic and serve to further extend the default-to-foreclosure-to-claim cycle timeline), we do not expect NMIC to use a meaningful amount of cash to settle claims in the near-term.
Debt and Financial Strength Ratings
NMIC's financial strength is rated “A-” by Fitch Ratings (Fitch), “A3” by Moody's and “BBB+” by S&P. NMIH's Notes are rated “BBB+” by Fitch and “Baa3” by Moody's, and its long-term counter-party credit profile is “BB+” by S&P. The outlook for all ratings provided by Fitch, Moody's and S&P is stable.
Consolidated Investment Portfolio
The primary objectives of our investment activity are to generate investment income and preserve capital, while maintaining sufficient liquidity to cover our operating needs. We aim to achieve diversification by type, quality, maturity, and industry. We have adopted an investment policy that defines, among other things, eligible and ineligible investments; concentration limits for asset types, industry sectors, single issuers, and certain credit ratings; and benchmarks for asset duration.
Our investment portfolio is comprised entirely of fixed maturity instruments. As of March 31, 2024, the fair value of our investment portfolio was $2.4 billion and we held an additional $139.7 million of cash and cash equivalents. Pre-tax book yield on the investment portfolio for the three months ended March 31, 2024 was 2.9%. Book yield is calculated as period-to-date net investment income divided by the average amortized cost of the investment portfolio. The yield on our investment portfolio is likely to change over time based on movements in interest rates, credit spreads, the duration or mix of our holdings and other factors.
The following tables present a breakdown of our investment portfolio and cash and cash equivalents by investment type and credit rating:
Percentage of portfolio's fair value March 31, 2024 December 31, 2023
Corporate debt securities 60 % 61 %
Municipal debt securities 25 25
U.S. Treasury securities and obligations of U.S. government agencies 7 7
Cash, cash equivalents, and short-term investments 6 5
Asset-backed securities 2 2
Total 100 % 100 %
Investment portfolio ratings at fair value (1)
March 31, 2024 December 31, 2023
AAA (2)
6 % 9 %
AA (3)
36 34
A (3)
45 44
BBB (3)
13 13
BB (4)
— —
Total 100 % 100 %
(1) Excluding certain operating cash accounts.
(2) Includes short-term securities rated A-1+.
(3) Includes +/– ratings.
(4) We held one security with a BB+ rating at March 31, 2024 and December 31, 2023, which is not identifiable in the table due to rounding.
All of our investments are rated by one or more nationally recognized statistical rating organizations. If three or more ratings are available, we assign the middle rating for classification purposes, otherwise we assign the lowest rating.
Investment Securities - Allowance for credit losses
We did not recognize an allowance for credit loss for any security in the investment portfolio as of March 31, 2024 or December 31, 2023, and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2024 or 2023.
As of March 31, 2024, the investment portfolio had gross unrealized losses of $190.2 million, of which $187.5 million
47
were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. As of December 31, 2023, the investment portfolio had gross unrealized losses of $184.3 million, of which $183.1 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.
We evaluated the securities in an unrealized loss position as of March 31, 2024, assessing their credit ratings as well as any adverse conditions specifically related to the security. Based upon our assessment of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of March 31, 2024 are not indicative of the ultimate collectability of the current amortized cost of the securities. Rather, the unrealized losses on securities held as of March 31, 2024 were primarily driven by fluctuations in interest rates, and to a lesser extent, movements in credit spreads following the purchase of those securities.
Critical Accounting Estimates
We use accounting principles and methods that conform to GAAP. We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that the assumptions and estimates associated with revenue recognition, our investment portfolio, deferred policy acquisition costs, premium deficiency reserves, and reserves for insurance claims and claim expenses have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates. There have not been any material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2023 10-K.
48